There’s less bad news in IBM’s earnings than Wall Street thinks

IBM’s (IBM) second quarter revenue miss yesterday (July 19)—the company reported revenue grow of just 2% instead of the 4% to 5% that Wall Street had expected—undermined the entire technology sector. Last week after Intel (INTC) reported earnings of 51 cents a share instead of 43 cents and revenue about $600 million above projections, and then raised guidance for the rest of 2010, Wall Street started to believe that technology could lead an economic and stock market recovery.

The fear today, after IBM’s results, is that technology revenue too is headed into a slump.

I think Wall Street is misreading the messages in both Intel’s and IBM’s quarterly earnings report. The technology recovery was never as widespread as some bulls hoped after Intel’s results. But IBM’s disappointing results don’t change the very real, but somewhat narrower, trend in Intel’s numbers. (For more on Intel’s results see my post Update Intel (INTC).) Read more

Will IBM earnings be good enough to fuel the rally?

IBM (IBM) got almost everything right in its October 15 earnings announcement. And still the shares dropped almost 4% in after-hours trading.

Sales fell 6.9% from the third quarter of 2008 to $23.6 billion. But that still beat Wall Street projections for sales of $23.4 billion.

Earnings for the third quarter climbed by 14% from the third quarter of 2008 to $2.40 a share. That was a penny ahead of Wall Street expectations.

And IBM raised guidance for the full year to at least $9.85 a share. Analysts had been calling for $9.78 a share.

And still the stock fell. Why? I”ve heard two explanations. Read more

Tech stocks to lead earnings season again?

It’s early yet in earnings season, but I were a gambling man, I’d give the technology sector odds on leading the stock market again this quarter.

Wall Street is beating the bushes for earnings growth right now. If earnings don’t go up in the next quarter or two, stocks won’t be able to continue the rally that began in March.

Anbd where’s the growth going to come from? Financials are kind of iffy. Bank accounting is going to be an unprdictable mess this quarter what with write ups for rallies in toxic assets, and write downs for the rising price of banks’ own debt (yes, that counts as a loss for accounting purposes), commercial real estate loans and credit card debt.

Commodities and materials stocks will do well if the dollar keeps stumbling and if China looks like its still buying, but these cyclicals are starting to seem pricy.

Nope, for good ol’ fashioned earnings power right now, it’s hard to beat technology stocks.

And Wall Street analysts are determined that investors won’t forget it.

On Friday, October 9, Barclays upgraded IBM (IBM) as part of an upgrade of the whole computer hardwar sector. IBM climbed almost 3% on the day and Hewlet-Packard (HPQ) moved up 2%. Inel (INTC) and fellow chip-maker Texas Instruments (TXN) rose 1.5% and 5%, respectively.

Even Qualcomm (QCOM), which has lagged the sector,climbed 0.6%.

Credit Suisse boosted its target price for Google (GOOG) and that stock inched ahead 0.4%. Maybe it’s harder to move a $500 a share stock or maybe investors rightly see Google as company driven by consumer spending and advertising and they still have doubts about the consumer’s willingness to spend.

(Full disclosure: I own shares of Qualcomm.

Sure can’t give Dell or Xerox points for originality. And these big acquisitions won’t do much for shareholders either

The stock market got all excited yesterday by big acquisitions announced by Xerox (XRX) and Abbot Laboratories (ABT). Xerox announced that it would buy Affiliated Computer Services (ACS) for $5.7 billion in cash and Abbot said it would buy the drugs business of Solvay (SVYSY) for $6.6 billion in cash.

That news helped stocks reverse recent weakness with the Standard & Poor’s 500 closing up 1.8% and the Dow Jones Industrial Average climbing 1.3%. The two deals, coming after news of acquisitions like Dell’s (DELL) $3.9 billion cash offer for Perot Systems (PER).

Now I can understand why the market as a whole would get excited at the news. Mergers and acquisitions push up stock prices. Dell, for example, has offered a 70% premium to buy Perot Systems.

But the recent trend in technology acquisitions worries me. The deals suggest a, what shall I call it, lack of strategic vision. At best we can hope that it’s just Xerox and Dell that are running in fear to strategies that have worked for competitors over the last decade. At worst, it’s a sign that the biggest companies in the sector are running out of growing room. Read more

So where’s the growth? IBM’s earnings climbed but sales fell.

So where’s the revenue growth to keep the rally going?

The July 16 earnings results from IBM (IBM) were great news for IBM and its shareholders. The company did beat Wall Street earnings projections by 30 cents a share for the second quarter of 2009 when it reported $2.32 a share instead of the $2.02 Wall Street consensus. And gross profit margin did climb to 45.5% in the quarter from 43.2% in the second quarter of 2008.

But the news in IBM’s report wasn’t nearly as good—in fact I’d call it downright stinky–for the stock market and the economy as a whole. IBM’s revenues dropped, 13.3% from the second quarter of 2008, and fell short of analyst projections by about $340 million. The weakness wasn’t limited to the United States either. Revenue fell for the Americas (down 9%), Europe/Middle East/Africa (down 20%), and Asia/Pacific (down 7%).

If one of the strongest companies in the world can’t generate some revenue growth, then those green shoots of economic recovery that everybody keeps talking aren’t enough to support a sustained increase in stock prices from current levels. Read more